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A Multidisciplinary Approach

This in-depth book explains how institutional changes such as the privatization and liberalization of network industries, for example transport, energy or telecommunications, can frequently be disappointing. The expected benefits such as lower prices, innovation and better services fail to materialize, often because the number of competitors is low. The authors demonstrate how strategic actor behaviour of one or more of the firms involved can help explain these disappointing results.

Chapter 6: Enron

Monograph Chapter

Extract

Mark de Bruijne INTRODUCTION In the wake of the accounting scandal that doomed Enron (cf. McLean and Elkind, 2003; Fox, 2003), Enron has gained notoriety for its strategic behaviour during arguably one of the more bizarre episodes ever to occur in a liberalized and deregulated energy market anywhere: California’s ‘electricity crisis’ during 2000–2001. Although suspicions about gaming and market manipulation by Enron’s West Coast electricity traders arose the very moment California’s markets went out of control, it was only until after the bankruptcy of Enron that documents and tape recordings emerged which provided unique evidence of the ways in which Enron traders had sought to ‘game’ California’s markets. Mysterious code names attached to these strategies such as ‘Fat Boy’, ‘Get Shorty’ or ‘Ricochet’ lent credibility to what some considered a ‘smoking gun’. From documents and previous research an interesting picture emerges of the behaviour of an energy trading company that was to become synonymous with all that was evil: Enron. 6.2 SETTING THE STAGE: CALIFORNIA’S ELECTRICITY MARKET DESIGN The trading strategies that Enron traders employed during California’s electricity crisis were predominantly market-specific, meaning that they could only be employed under the rules and circumstances that were present in California’s electricity industry at the turn of the new Millennium.1 These market conditions will be shortly outlined, starting with the main players. 6.2.1 The Players California’s electricity restructuring programme at that time represented the boldest and most advanced state of deregulation in the US. California’s plan outlined in legislation bill number...

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